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Office Depot, OfficeMax Merger: 'It's About Damn Time'

While details of the potential merger, first reported by
The Wall Street Journal, haven't been disclosed,
Bloombergreported that a deal is possible this week.

It remains unclear whether OfficeMax or Office Depot would be the acquirer in a potential merger.

Deutsche Bank analyst Mike Baker forecasts that if OfficeMax were the acquirer, it could see a boost to earnings per share of 22 cents. "Although we think the more likely deal is OfficeMax buying Office Depot, if ODP were to buy OMX in an all-stock deal, it would be more accretive," wrote Baker, who calculates a 30 cent EPS boost for Office Depot.

To help pay for the deal, Office Depot may also need to dispose of a joint venture in Mexico.

One twist to a potential deal comes from antitrust authorities such as the
Federal Trade Commission and
Department of Justice.

In 1997, the FTC's head, William Baer, opposed a merger proposal between Office Depot and Staples, citing the prospect of anti-consumer effects such as rising prices. Baer, who now heads the DoJ's antitrust division, is likely to play a key role in evaluating any proposed merger.

Still, the struggles of OfficeMax and Office Depot in recent years may indicate a changed office-supplies marketplace that could push a deal forward.

"The competitive landscape within the office-products retail channel has dramatically changed since the FTC nixed the proposed 1997 merger between Staples and Office Depot," Jefferies' Binder wrote.

"The rise of large players in the Internet retail channel and the entrance of club and mass channel to the office product market resulted in a significant increase in price transparency and competition," he added, while noting that Wal-Mart and Amazon have undercut prices up to 10% in some instances.

Shares of Office Depot, which has been
struggling to compete with larger rival Staples, plunged 67% over the past five years prior to Tuesday trading.

Office Depot and OfficeMax declined to comment when contacted by
TheStreet.